About a $30 trillion transfer of wealth is currently underway as aging baby boomers pass their assets to the next generation. Yet we still see many who make common mistakes which can thwart their intentions.
Moreover, relatives whom the decedent may not have wished to benefit may receive their assets, and disabled heirs receiving government benefits such as Medi-Cal could have their benefits terminated.
Neglecting to Plan for Incapacity or Disability
It's critical to have documents appointing agents to manage one's health care and financial affairs in the event of incapacity. It is through Advance Health Care Directives and Durable Powers of Attorney that this is accomplished. And not just any documents will do, such as the brief checklist forms that are often provided by attorneys. At our office these documents are quite detailed to cover a variety of situations that the checklist version simply don't. Without these documents, state law will determine who can make health care decisions and a conservator may have to be appointed to permit financial and health care decisions to be made for an incapacitated person. This would be an expensive, time-consuming process to be avoided.
Trying to "DIY" Estate Plan Documents
The phrase, "penny wise, pound foolish" comes to mind here. Documents made by those who think they can accomplish their planning on their own or from self-help websites are frequent sources of estate planning mistakes. And there are no do-overs here. It will be too late when something happens (an incapacity or death). Even if the document qualifies as valid, oftentimes it is not executed properly, thus rendering it invalid. There's simply no substitute for retaining a qualified estate planning attorney to ensure that one's documents are properly drafted (to accomplish your objectives) and executed. It's about peace of mind.
Improper Beneficiary Designations and Joint Accounts
I discussed this topic in detail in last week's blog. Just know that a living trust or will does not control the transfer of accounts that are joint or have beneficiary designations upon your death. For retirement accounts such as IRAs or 401(k) plans, properly designating beneficiaries is essential to avoid the loss of further income tax deferral at death. Client's engaged in estate planning should consult their attorney about all of their account titling and beneficiary designations to ensure that such designations reflect their plan's design and do not circumvent it.
Not Reviewing an Estate Plan
You should not create, then forget about your estate plan. Things change through time - relationships, finances and the law change over time. All of which can invalidate prior planning. To avoid obsolescence, families should typically r e-examine their estate plan every three years or after a major life event such as a death or marriage. Our firm offers a free review consultation every three years.
Forgetting that Multiple Marriages Need Planning
Entering into another marriage and blended family situations can get complicated when it comes to estate planning re determining how their assets will be divided at their deaths. Without proper planning, a surviving spouse or children from a prior marriage can be left penniless or without proper resources upon the death of the first spouse. Creating trusts, buying life insurance and titling joint accounts can be an important means for second spouses to provide assets for each other as well as their descendants at death. Planning ahead can help ensure family harmony and reduce costly litigation. It's about leaving a good legacy.
Keeping Secrets From Your Estate Planning Attorney
Sometimes people are reluctant to provide complete information regarding their family or finances and only provide vague or incomplete details. An experienced estate planning attorney may be able to make suggestions that will avoid future family conflict, increase the value of an estate and minimize taxes. These objectives are not possible, however, if the planner does not have accurate financial information or a comlete picture of the family dynamics. Planning the best strategy is only possible if the client provides all of the necessary information.